Operating, net income up for California hospitals

California's hospitals, like most others in the U.S., were hit hard by the Great Recession, but data from the state agency that monitors acute care facilities suggest most have recovered nicely.

Both aggregate hospital operating and net income rose dramatically after 2008-09, when the Great Recession hit the hardest, according to the California Office of Statewide Health Planning and Development (COSHPD).

Hospital aggregate operating income, which averaged $340 million between 2006 to 2008, reached $1.58 billion in 2009 and 2010. And while total margins were in negative territory as recently as the third quarter of 2011, they rose to 7.2 percent by the first quarter of 2012.

Aggregate net income plunged with the stock market: In 2008, it was $2.1 billion, a 40 percent drop from 2007. But by 2010, it topped $4.1 billion.

"During the recession, many hospitals experienced a reduction in volume as many patients delayed or cancelled elective procedures," Jan Emerson-Shea, vice president of external affairs with the California Hospital Association, told FierceHealthFinance. "Correspondingly, hospitals reduced their costs--which helped them climb out of the economic downturn."

Steven T. Valentine, president of The Camden Group, a Southern California firm that provides consulting services to hospitals, told FierceHealthFinance that hospitals laid off many lower-level staff in order to cut costs. But nurses, who are unionized and under state law must staff hospitals in specific ratios to patients, remained on the payrolls.

Partly as a result, overall labor costs soared 29.5 percent between 2006 and 2010. They rose from $77,021 to $95,222 per full-time employee, according to COSHPD data.

And the future is not all rosy. Overall operating margins were at 2 percent in the first part of 2012, which Valentine termed "anemic."

That appears to be borne out by a recent report by Moody's Investors Service, which concluded that many hospitals continue to struggle with rising expenses outstripping revenue growth. It has issued negative outlook reports for not-for-profit hospitals for six consecutive years.

To learn more:
- read the COSHPD data (.pdf)